Over the last few weeks, I have talked about what a HECM (or reverse mortgage) is and how it works.  Today, I wanted to go over who can get a HECM (Home Equity Conversion Mortgage), what is required, and how you get qualified.  So here we go…

First, the home that you are looking to get the reverse mortgage on must be your primary residence. This ultimately means that you spend more than half the year living in this home. You can own multiple homes (like a second home and rental properties), but the reverse mortgage is only allowed on your principal residence. You can travel for part of the year but again the home must remain your primary residence.

Second, you or your spouse must be at least 62 years of age to qualify for a HECM. The HECM is once again the most popular type of reverse mortgage and is insured by FHA. However, there are other types of reverse mortgages which are available to homeowners starting at age 55. These types of reverse mortgages are not insured by FHA, but they are still non-recourse mortgages and have similar features and benefits. 

Third, the home must qualify under FHA standards and guidelines. This is the case for either the HECM or a non-FHA reverse mortgage. Generally, this would include single family homes, townhomes, most manufactured homes built after June 15, 1976, and condos that are specifically approved by the FHA. You can even finance a multi-family home up to four units, as long as you are living in one of the units. There are certain circumstances when we can do a reverse mortgage on condos that are not approved by FHA. These are reviewed on a case-by-case basis and may have additional qualifications. 

Additionally, the home must not have any health or safety issues. Examples can include items like a missing railing on a staircase or a deck, peeling paint on the exterior of the home, broken windows, unserviceable roof, and more. If there are any health or safety related issues, the appraiser must address them, and the underwriter will determine if these items need to be repaired prior to closing or if they can be fixed after closing through a repair set-aside (more on what a repair set-aside is in a future article).

As far as the borrower qualifications, there are some basic income and credit qualifications which we call a Financial Assessment. The Financial Assessment is a relative new requirement that was established in 2015. These income and credit qualifications are designed to ensure the homeowner has the financial capacity (and willingness) to pay the property taxes, home insurance, HOA dues, and to maintain the home for the foreseeable future. There is generally no minimum credit score requirement, but we review your credit history to see how well you have borrowed and repaid debt in the past which helps to establish the “willingness” aspect of the qualification. Generally, the underwriter will not decline a borrower due to credit score or history but will determine if a LESA (Life Expectancy Set Aside) is required or not. I will explain a LESA and a repair set aside in a future article but in short this is setting money aside up front that will pay the property taxes and home insurance in the future.

Lastly, if you are using a reverse mortgage to purchase a home, then there are a few additional qualifications, and you will be required to have a down payment equivalent to 30 to 70 percent of the home’s value. This down payment percentage depends on current interest rates and the age of the youngest borrower or eligible non-borrowing spouse’s age, if applicable.*

Stay tuned over the next few weeks to learn different ways reverse mortgages can be used and the importance of considering home equity as part of a diversified retirement strategy.

The reverse mortgage is a dynamic and a customizable product that can be implemented for each client’s specific needs and goals. That is why it is so important to work with a local reverse mortgage planner to ensure the product is properly explained, structured, and utilized.

*A non-borrowing spouse is typically someone that is married to the homeowner/ borrower but is either under the age of 62, or not on the title to the home, or does not intend to occupy the subject property.